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PR: Let's start with financing...

posted by John Pottow

OK, so I start from the premise that holdouts don't want to restructure debt but others do.  Thus, the goal should be incentivize restructuring in a way that beats up on holdouts.  Could the Feds say they'll offer financing (e.g., underwrite new bonds) for people who exchange bonds/debt?

Comments

& what happens to the ones that refuse to exchange?

Exit consents?

If the financing is attractive enough (relative to what looks like would be recovered without it), those who opt out might be liable to their shareholders (or partners, etc.) for rejecting this deal.

Dalié Jiménez makes a great point that dovetails (in changing incentives) to some extent with the proposal of Gulati & Rasmussen in 1/14/2016 FT Alphaville.
http://ftalphaville.ft.com/2016/01/14/2149806/guest-post-puerto-rico-debtor-heal-thyself/

Otherwise, holdouts make life impossible for those who cooperate, a la Argentina.

& for more from Pottow on why bankruptcy is needed here, see his Op Ed in The Hill

http://thehill.com/blogs/congress-blog/economy-budget/260994-the-pitfalls-of-no-puerto-rico-bankruptcy

So I think the Feds could do this -- they could incentivize an exchange offer -- but the question is, as Adam points out, do they have enough (legally available) financing to make it attractive? I don't know.

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